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Sen. Ted Cruz (R-Texas) has refused demands by the Federal Election Commission to
provide more public details about more than $1 million in bank loans that helped finance
his original campaign for the Senate in 2012, according to a new
memorandum from FEC staff auditors.

Questions about Cruz’s loans were raised in news reports during last year’s presidential
campaign, when the Texas senator was running for the Republican presidential nomination.
The questions have never been fully resolved, according to the FEC auditors.

An audit finding that Cruz violated campaign finance reporting rules is set to be
considered at the FEC commissioners’
next open meeting May 25. Cruz’s office told Bloomberg BNA that the campaign disclosure
reports would be amended after the FEC commissioners approve the audit findings.

“Once the FEC Commissioners approve the audit report at Thursday's meeting and the
process concludes, we will be able to accurately amend our reports to be consistent
with the FEC's recommendations,” said Catherine Frazier, a spokeswoman for Cruz's
office.

Cruz acknowledged in a letter to the FEC in January 2016 that he used loans from Goldman
Sachs Group Inc. and Citibank, a subsidiary of Citigroup Inc., to help finance his
2012 campaign for the Senate. The letter did not provide details about the loans,
including whether they were secured by assets held jointly by Cruz and his wife, Heidi,
who had worked for Goldman Sachs.

FEC Reports Never Amended

The loans weren’t reported, as required by FEC rules, in Cruz’s original Senate campaign
finance reports, and those reports have never been amended, the FEC auditors’ memo
said. Cruz’s Senate campaign committee “declined to make any additional comments regarding
this matter” in response to questions from FEC auditors.

The auditors’ memo recommended that the FEC find Cruz’s Senate campaign “failed to
properly disclose”
that $1,064,000 in funds it reported as candidate loans originated from commercial
lenders.

Questions Raised in Presidential Campaign

Although Cruz’s failure to report the loans wasn’t questioned in 2012, questions were
raised in news stories last year, during the presidential campaign. His campaign said
the failure to list the bank loans in the initial FEC reports was inadvertent and
noted that the loans were disclosed on personal financial disclosure reports filed
with the Senate Ethics Committee.

Cruz’s Senate campaign committee sent a January 2016 letter to the FEC “to supplement
the public record”
regarding its loans from the candidate. The three-sentence letter stated that the
“underlying source of some of the loan amounts”
was a Goldman Sachs margin loan and a Citibank line of credit, but it provided scant
details.

The FEC auditors’ findings on the matter are set to be considered by the FEC commissioners
at a meeting May 25. The FEC meeting
agenda also includes long-pending audit findings regarding the Colorado Republican Party,
a draft advisory opinion (AO 2017-02) regarding deposits by federal political committees,
and possible new FEC rulemakings on political party committees.

Repayment of Cruz’s Candidate Loans

In addition to the findings on the Cruz campaign’s failure to report bank loans, the
FEC auditors’ memo also found that Cruz didn’t convert some candidate loans to his
campaign committee into campaign contributions, as required by the law and FEC regulations.

Federal campaign finance law restricts the amount and timing of candidate loans that
can be paid back with other contributions after an election is over. Cruz ignored
this requirement, however, and his campaign continued to report $545,000 as a loan
payable to the candidate for years after the 2012 Senate election was over, according
to the FEC auditors’ memo. The campaign repaid $485,000 to Cruz within the requirements
of the law, the memo said.

After a conference with FEC auditors in 2015, Cruz’s campaign committee agreed to
convert the $545,000 it had reported as a candidate loan balance into a contribution
from the candidate. The campaign committee said, however, that it “reserves the right
to challenge the constitutionality” of restrictions on the amount of personal debt
that may be repaid by a campaign to a candidate.

Pending Enforcement Matter Cited

The FEC told Cruz’s campaign last year that rules on reporting of candidate loans
to a campaign require clarification of “whether or not the candidate used personal
funds or borrowed the money from a lending institution or some other source.”

The agency’s letter, signed by Bradley Matheson of the FEC’s Reports Analysis Division,
requested that Cruz’s Senate campaign committee amend its previously filed disclosure
reports to indicate the source of each loan and whether the loan to the campaign was
derived from the candidate’s personal funds or obtained from a bank loan, brokerage
account, credit card, home equity line of credit, or other line of credit.

The FEC letter, known as a request for additional information, or RFAI, gave the Cruz
campaign a deadline of March 8, 2016, to respond and correct its reporting problems.
Cruz’s campaign treasurer, Bradley Knippa, responded to the FEC in a letter on that
date, but the letter indicated the campaign wouldn’t provide the requested information
on the public record.

Knippa’s letter said that enforcement complaints had been filed with the FEC regarding
the bank loans at issue. FEC enforcement matters generally are handled secretly until
they are resolved, and Knippa said it was the campaign’s understanding that RFAI’s
aren’t sent out by the FEC during the pendency of an enforcement matter.

“You can expect our cooperation to bring this matter to a quick and amicable resolution,”
Knippa’s letter said. More than a year after the letter was sent, no resolution of
an FEC enforcement matter involving Cruz’s campaign has yet been announced.

To contact the reporter on this story: Kenneth P. Doyle in Washington at
kdoyle@bna.com

To contact the editor responsible for this story:
Paul Hendrie at
phendrie@bna.com

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